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Gold Futures Decline to Three-Week Low on Stimulus Bets

June 18 (Bloomberg) -- Gold futures fell to a three-week low on speculation that the Federal Reserve may signal a reduction of U.S. economic stimulus. Palladium dropped to the cheapest in more than a month as European car sales plunged.

Fed policy makers began a two-day meeting today. The central bank currently buys $85 billion a month of Treasuries and mortgage debt. Chairman Ben S. Bernanke said last month the pace of purchases may be scaled back if the employment outlook shows sustainable improvement. Physical gold demand in North America and Europe has dropped 80 percent from April, Kitco Metals Inc. said in a report.

“Everybody is waiting for tomorrow’s statement,” Frank Lesh, a trader at FuturePath Trading in Chicago, said in a telephone interview. “There is a complete lack of interest on the physical side.”

Gold futures for August delivery declined 1.2 percent to settle at $1,366.90 an ounce at 1:44 p.m. on the Comex in New York. The price touched $1,360.20, the lowest for a most-active contract since May 23.

The cost of living in the U.S. rose less than forecast in May, restrained by the first drop in food prices in almost four years, a government report showed today.

Gold has fallen 18 percent this year, partly as investors lost faith in the commodity as a store of value amid low inflation. Global holdings in exchange-traded products backed by the metal extended a slump to the lowest since March 2011.

Silver futures for July delivery slid 0.4 percent to $21.677 an ounce on the Comex.

On the New York Mercantile Exchange, palladium futures for September delivery dropped 1.3 percent to $708.35 an ounce. Earlier, the price touched $697.10, the lowest since May 10.

Platinum futures for July delivery rose 0.4 percent to $1,440.10 an ounce. Both the metals are used in jewelry and pollution-control devices in cars.

European auto sales fell to a 20-year low in May amid rising joblessness caused by a recession in the euro region.

To contact the reporters on this story: Debarati Roy in New York at droy5@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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